BusinessDay

States’ huge debts, low revenues raise concerns

The huge debt burdens of many states in Nigeria amid low internally generated revenues have come under the spotlight, with experts describing the situation as a major challenge for the next governors.

Governments at the state level have continued to battle low revenue generation, worsened by depleting monthly allocations from the Federal Account Allocation Committee (FAAC).

The domestic debts owed by the 36 states and the Federal Capital Territory (FCT) rose to N4.45 trillion in December 2021 from N4.18 trillion a year earlier… while their external debts increased to $4.77 billion from $4.61billion.

The 36 states and the FCT generated a total Internally Generated Revenue (IGR) of N849.12 billion in the first half of 2021, while their total domestic debt for the period stood at N4.12 trillion, according to available official data.

Lagos State accounted for N267.2 billion, representing 31 percent of the total IGR in the first half of 2021, followed by FCT with N69.1 billion; Rivers State, N57.3 billion; Ogun State, N54.8 billion; and Delta State, N41.9 billion.

States with the least revenues for the period include Yobe, Taraba, Gombe and Adamawa, which generated N4 billion; N4.77 billion; N5.44 billion; and N6.09 billion respectively.

According to data from the Debt Management Office, domestic debt owed by Yobe, Taraba, Gombe and Adamawa states in the first half of 2021 stood at N60.23 billion, N99.8 billion, N82.2 billion and N90.37 billion respectively.

BusinessDay analysis showed that Yobe’s revenue was 6.64 percent of its debt in the period under review; Taraba’s revenue was 4 percent of its debt; Gombe’s revenue was 6.61 percent of its debt; and Adamawa’s revenue was 6.73 percent of debt.

“While ensuring that accumulated debt is appropriately utilised, it is also critical for the government to ensure that it does not outweigh the states’ ability to generate revenue,” Muda Yusuf, CEO of Centre for the Promotion of Private Enterprise, said.

According to him, states whose debts far outweigh their revenues create problems for the next administration.

He said, “Debt in all sense of it should be related to capacity to repay; hence, the ability to generate revenue must be considered.

“As it is now, not so many states are viable. Many of them are struggling to remain solvent, existing only to pay salaries and overhead expenses. ”

Yusuf stressed the need for state governments to ensure that debts are spent on projects that can generate more revenue.

He said states must come up with innovative ways of revenue generation while cutting down on expenses.

Read also: NNPC’s N700bn FAAC deductions since January cripple states’ finances

A major concern is that with high debt levels and low incomes, many states are unable to fund their infrastructure needs as they are struggling to meet recurrent expenditure.

BusinessDay gathered that some states have started cutting salaries of their workers.

In an interview with BusinessDay, Eze Onyekpere, lead partner at the Centre for Social Justice, said most governors continued to “borrow recklessly without proper investment plan.”

He said, “Just like we saw in the case of the new governor of Anambra State, he recently complained that there are no projects to show for the debt owed by his predecessor. What we see in the government is that they borrow huge amounts of money with nothing to show.

“It is high time the legislative arm of government took their work seriously, especially when it comes to approving new loans and ensuring that these loans are properly invested.”

Chijioke Ekechuckwu, former director-general of the Abuja Chamber of Commerce, faulted the budgets of most state governments.

According to him, most state governments still rely on revenues from the federal account, and ignore possible ways of generating revenues internally.

He said, “The issue of poor revenue and high debt in states has become an issue of concern for us as a nation. When a government borrows beyond its capacity to repay, it becomes a burden on subsequent governments.

“And this, in the long run, affects the ability of the government to deliver on infrastructural projects as well as meeting even the basic needs of the people. Our system is faulty, even with the distribution of FAAC revenues because it has made some governors lazy when it comes to revenue generation.”

Ekechuckwu added, “Now that FAAC allocation is dwindling and state governments refuse to take advantage of the potential in their states to meet their needs, we see them accumulating debt upon debt.

“It behoves on incoming governors to review the activities of their predecessors to ensure monies are spent appropriately. This will put governors on check as they serve, knowing that they will give account at the end of their tenure.”